The Experience is the Product

Matthew Josefowicz

I had a chance to present on customer experience in insurance recently at the Insurance Performance Association. It was an interesting event featuring several engaging speakers from outside the industry as well as business leaders and consultants from within.

My presentation focused on the role of technology in supporting customer experience, especially in a technology-transformed world where customer expectations are set by other, more advanced industries like banking and online retail. This is an important are of research for us at Novarica: our report on Insurer Digital Capabilities focused heavily on customer and stakeholder experience, and one of our recent Research Partner Program reports focused on this topic, especially related to ECM.

But even more important than deploying technology-enabled capabilities effectively is the incorporation of experience into the insurance product itself. As the slide below from my presentation illustrates, the overall experience of feeling covered is what insureds are buying, not just risk transfer.
(R)Evolution in Customer Experience in Insurance

Rather than start from a coverage and price, insurers may want to start with the customer’s need.

This is also the topic of our latest “Novarica Quick Quote” slideshare.

Evolution or Revolution: Insurance in Flux

Mitch Wein

I am very excited to have joined Novarica, and to have a front-row seat to the 2015-2018 Insurance Revolution. What do I mean? There are some key themes flowing through the evolution of technology generally that will have a revolutionary impact on the insurance industry over the next few years. Some of these areas include the “Internet of Things,” Social Media, Big Data, Cloud, Mobile, Security and Digital. These changes are on top of the regulatory changes sweeping the insurance industry like the Affordable Care Act, HIPAA and privacy regulations.

But to focus on the technology changes:

  • The “Internet of things” implies all things being IP enabled, including things that P&C Insurers think about, Auto, Home, Facilities, and even human beings through wearables like the iWatch or Google Glass.
  • Social media opens new ways to communicate to the customer and to understand the customer’s needs.
  • Big Data implies the collection of large data both internally and externally and acting on it through workflow and customer interaction.
  • Cloud implies a virtualization of where the software and platforms resides, introducing security and regulatory considerations.
  • Mobile becomes the preferred interaction mechanism for the customers, brokers, agents, etc. The customers “moments of truth” take place in an omni-channel environment.
  • Security is within everything done by insurers, agents, packages, services, etc.

Ultimately, all of this turns the insurance industry into a digital industry. So, what does this mean for me within Novarica? Of course I will be participating in the creation and delivery of key Novarica advisory services including strategy development, vendor selection, benchmarking, and IT assessments. I’ll be adding my extensive international and enterprise architecture experience to Novarica’s collective expertise.

But my particular focus as I help drive and create these services will be to help overlay the trends listed above and evolve the offerings and delivery to our customers to take these into account. I will be working with the rest of the team to create new offerings that speak to the trends above like digital readiness, architecture governance, IT roadmap development, and large project implementation planning and risk mitigation.

Evolution of Revolution – for all a little of both. For me…lots of fun. I look forward to hearing your thoughts – contact me at mwein@novarica.com!

Novarica Quick Quote: Build for Change

Matthew Josefowicz

We’re continuing our series of Slideshare presentations we’re calling Novarica Quick Quote. Each one is designed to convey a single important idea related to how technology is changing the insurance industry. Each one is meant to be consumed in 15 seconds or less, and our hope is that our clients and council members will find them to be a useful tool to stimulate strategic discussions.

This week’s installment is called “Build for Change”

You can check out all of the presentations in this series at http://www.slideshare.net/novarica/

Baked Ham and How “Best Practices” Reflect the Best Available Technology…

Rob McIsaac

Both organizations and the people who comprise them are, to a significant degree, a function of their experiences. As time progresses we learn what works, and what doesn’t. We explore strategic alternatives and consider decisions which reflect an appropriate balance of risks and rewards in order to allow us to optimize results based on a specific set of criteria.

Both insurance companies and their employees also learn from their mistakes. The corporate form of “don’t touch that stove” may actually tie to business ventures gone sideways, technical investments gone bad or M&A events that spectacularly failed to hit their mark. No matter what it is, these experiences inform future decisions unless (or until) they fade from the conscious memory.

Of course these events have a corollary which focuses on what worked, and these “winning” strategies and tactics also form a foundation for future success. In fact, for many organizations, the past many times is deemed to be a predictor of the future, so long as it gets put into the right context. This also means being in a position to draw the correct lessons from past experience, and avoiding the temptation to confuse “correlation” with “causation”.

The correct lesson extraction may, in fact, be the tricky part.

I heard a story recently which brings home the point. In prep for a holiday dinner that involved a ham, a spouse noted that the ham had been cut in half before put in the oven. Why?

“Because that’s what my mother did” came the reply. Asking the mother-in law-why she did it produced a similar, inter-generational,: “because that’s the way my mother did it”.

Blessed with the opportunity to ask the grandmother-in-law why the ham was cut on half got to the root of the matter. And the response for the ages: “because my oven was too small for a full ham to fit!”

Which gets back to many insurance carriers as they consider options for future business process changes and the technology investments, including core systems, that will support them. As carriers look to replace platforms from an earlier era, rather than focusing on what is possible to do with modern tools , they continue to plan for a world that was heavily informed by what worked in the past, failing to appreciate the limitations created by the environment of a different day. Rethinking business processes and related structures can dramatically improve operational and financial results, but not if they are arbitrarily constrained by legacy limitations.

As carriers embark on technology stack replacements they need to understand their own half-a-ham stories and proactively work to explode them for the myths that they are. Getting outside of the company, perhaps outside of the industry, can be particularly helpful and instructive for CIO’s and their teams today. Last year, I had a chance to visit the BMW assembly plant in Greer, SC. This is an amazing facility that is essentially business process and industrial choreography on steroids. The last time I’d seen a plant like this was in the late 1960’s watching Chevys come down the line. This was like Star Wars (my new experience) meeting Charles Dickens (my recollection from a bygone era). It was hard to imagine that these were the same types of places.

Building a state of the art, 21st century car, in a plant rooted in the lessons of Henry Ford, would be impossible. Insurance carriers face a similar dilemma as they get ready for a new and every more competitive environment. Game on!

Strategic Alignment for Insurers

Matthew Josefowicz

As part of my presentation this week to the annual PCI Technology Conference on Technology Trends in Insurance: Change, Legacy, and Disparity, I discussed the need to align product, segment, channel, and process/technology in insurance.

Although some insurers have been discussing this need for a long time, changes in the data environment and information technology capabilities, and attendant changes in customer expectations, make this more important than ever.

Novarica PCI Tech Presentation 2014b

  • Product. Insurers need to broaden their definition of product. There is a disconnect between the way insurers see their products, which focuses exclusively on coverages and pricing, and the way customers see the product, which includes the overall experience of buying and being a customer. Insurers need to start from this customer perspective in order to design a product that effectively meets a market need for more than fair coverage at a fair price.
  • Segment. All business is program business. Insurers already have experience in aligning product, segment, and channel – it’s called “program business.” The insurance industry needs to apply this approach to the rest of their product portfolio.
  • Channel. Different segments will buy different products through different channels. Insurers should make sure they’re leveraging the right channels to sell the right products to the right segments, and not assume that they can push any product to any segment through their preferred channel.
  • Process and Technology. All of the above is only possible with the right processes and technology that are aligned to support the creation and delivery of the right products to the right segments through the right channels. Insurers should re-examine their processes in the light of currently available information technology capabilities and the experiential needs of their target market segments.

Only by aligning these four areas will insurers be able to compete for modern customers. For more insights from my presentation, Novarica clients can download the full deck here.

Wearables Update: the Apple Watch

Tom Benton

The tech world has been waiting in anticipation the last few weeks to find out what Apple’s latest offerings will be. While everyone expected a new iPhone model (and got two actually – the iPhone 6 and a larger screen version, the iPhone 6 Plus) and the next version of the iOS operating system (iOS 8), the key question was whether the long-rumored iWatch would be presented at the fall product announcement event on 9/9.

Apple did announce their new Watch offering at the event, and found ways to differentiate their offering through providing various editions for specific markets/purposes, and providing ways to use watch functionality beyond telling time without a phone connection, such as heartrate monitoring and ability to respond to gestures, etc. Also, the Apple Watch will leverage Apple’s new Apple Pay service to allow wearers to pay for items at such retailers as Whole Foods and Macy’s.

However, the device is not yet available (probably shipping early next year) and will be at a price point higher than competing devices – starting at $349. Apple device users expect a premium price, but may be confused by the three “editions” of the watch: a standard smartwatch (“Apple Watch”), a rugged sport version (“Apple Watch Sport”) and a fancier fashion-focused edition (“Apple Watch Edition”). Also, by not shipping until next year, Apple may lose significant ground to other smartwatch offerings – the Pebble, which has been generally available for over a year, Samsung’s many offerings and new Android-wear devices such as the Moto 360 which became available late last week and sold out in a few hours.

So what will the impact be on insurers? In my report on wearables, I mentioned that smartwatches can be used for customer engagement and collecting information about the wearer’s activity, useful for determining their level of fitness and general health. Apple’s Watch offerings will fuel the growing consumer interest in wearables, leading to a critical mass of users who will demand they are supported by all businesses they work for and purchase from, including insurers. Wearables are becoming another important communication and engagement channel for insurers, and need to be considered in digital and customer experience strategies as well as considered in IT application and architecture roadmaps. As current systems struggle to support mobile channels, future systems should be planned with wearables taken into consideration.

By the way, after Apple’s announcement I asked around to various demographic groups at the Insurance CIO Summit, which I am attending this week in Atlanta. Few said they would be interested in buying the Apple Watch – some were not yet interested in wearables, others felt there were other offerings that were available that they would consider and others took more of a “wait and see” approach. One interesting response was from a younger Gen-Xer who continues to wear a fashion watch, and said she would not be interested in the Apple Watch because she expected it not to look as fashionable (for instance, she found my Pebble “unattractive”). Clearly people choose what they wear on their wrists for many purposes, so Apple’s approach of multiple offerings may prove to be a good strategy. However, they will need to provide relevant apps and educate consumers on why their smartwatch provides capabilities that wearers can’t live without. (Is my Pebble watch really that unattractive? Hmm.)

Core Systems Selections… It Isn’t Like Riding a Bike!

Rob McIsaac

Or, in retrospect, maybe it is. The old adage that “we never forget” key life skills from an earlier time may have some instructive elements for CIO’s to be aware of. And to beware of.

I recently really did return to riding a bike and, while there haven’t been any medical emergencies, it hasn’t exactly been what I’d call “smooth”. While I understand the concepts and the physics, the act of putting all the pieces together into a smooth and fluid motion that is safe requires more than just fond memories of an earlier time. It requires practice and a surprisingly high level of dedicated time to get it right. A success metric built around the phrase “didn’t crash” seems to be dubious at best.

My wife recently took up the piano again with very similar results. Knowing where the keys are is helpful but not enough to make visions of Carnegie Hall dance in anyone’s head.

All of which, of course, then begs the question about how an insurance carrier can best go about selecting … and hopefully implementing … a new core system. The reality is that for many carriers this is something that they have very limited recent practical experience with, even if they have some vague recollection of the key steps. There’s no muscle memory that they can rely on or institutional capacity that has been recently exercised in order for them to have a leverage able asset. Once again, “didn’t crash” is a pretty low success bar to achieve. For many carriers, making these kinds of investment decisions are only pursued a few times in the course of a generation, so thinking that there’d be notable carryover from one experience to another would really stretch credibility.

Beyond that lack of recent experience, the changes in technology from one era to another can also add daunting new level of complexity to the issue. I also learned this the hard way when rekindling the interest in biking. It turned out that all of my experiences were rooted in the 1980’s and 1990’s; the technology has changed dramatically since then, creating a multi-dimensional learning event. Unless my goal was to optimize around solutions that are 30 years old, thinking differently and being open to outside influences proved to be pretty important elements for building to ultimate success.

For carrier CIO’s, finding a way to gain both organizational muscle and institutional knowledge fast is also a critical factor for success. As increasing numbers if carriers across a range of lines of business are finding, a system strategy the addresses replacement of core capabilities is a logical enabler for future success. It isn’t just for P&C anymore.

To that end, using a process like what Novarica offers our Advisory clients is a way to both speed up the selection process and to reduce the risks associated with these initiatives. The experiences built up over many efforts across multiple carriers helps to position these assets to be immediately leveraged for success. The idea of “didn’t forget” something is rather different from “didn’t stop doing”.

As exciting as “On the Job Training” can be, the IT equivalent of open heart surgery is likely not a practice with an appropriate risk / reward profile. Happy trails!

The Problem With Differentiation

Tom Benton

In reading recent articles on innovation, there is a definite focus on differentiation. Various elements to innovation are often mentioned: agility, culture, transformation, customer-focus, data-centered, etc. These are often directed at how a company can develop new innovative products or provide new innovative services or new innovative delivery channels. Carriers are encouraged to use big data to learn more about their customers (policyholders and/or producers), to use the cloud and mobile to provide ease of doing business or to modernize their systems to provide customers with faster better service through internal process efficiency. The focus of these efforts is to be different, faster, better than other providers.

Now, differentiation can be a very good strategy. Apple has become the number one brand and the company of the highest net value (or near it) by following a corporate-wide culture of “Think Different”. Within the insurance world, companies like MetLife, Geico and Progressive have use innovative marketing, branding and technology to their advantage through differentiation. However, there’s a problem with focusing your strategy on differentiation. To be successful at differentiation, a company has to have a corporate culture that supports it – a culture of listening for ideas, design thinking, and tolerance for failures. It has to support its innovation efforts with talented staff, properly funded technology investments and simplified agile processes.

Developing this kind of culture and environment for innovation is relatively easy for start-up companies, but more difficult for the established players in a market, especially if they are risk averse, have a culture of failure being fatal and established technology that is difficult to maintain, upgrade and replace. Creating the proper environment for innovation takes either radical change, or time to evolve the culture and environment. Leaders in established companies often are not willing to make the radical changes necessary, and evolving the culture takes time while other companies get further ahead in the race for innovation and differentiation.

The real problem with differentiation is that unless you are prepared to differentiate now, the innovations will become accepted and you will need to follow a course of imitation. In a recent HBR article, Freek Vermeulen. Associate Professor of Strategy and Entrepreneurship at the London Business School, talks about how customers view differentiation. In some industries, the products and services are fundamentally not that different. He suggests that customers make buying decisions based less on what is different and more on social context – they buy a particular product or service because their social network and relationships suggest it is known and an acceptable choice.

The implication for insurance carriers is that differentiation is a good strategy, but eventually the innovation produced is imitated and becomes a standard offering. A strategy of imitation will eventually be required, and when products look the same to the customer, they will choose based on their social networks and relationships. An alternate focus for innovation by differentiation, then, might be to follow a strategy of imitation and socialization. For example:

  • Instead of using big data to understand customer behavior, shape the behavior through social interaction. While streamlining customer interaction through the cloud and mobile strategies, find ways to build relationships where customers will interact with you and others to build trust and preferences.
  • While modernizing systems to provide internal process efficiencies, put internal social networking into place to build a culture and skills that can be used to leverage external social interactions.
  • Win customers not by being the coolest or latest, but by being the most connected and trusted.

The best part is that a strategy of imitation and socialization can be done while updating technology to do what others are doing, and it builds the kind of culture that can transform into one that is innovative and possibly differentiated in the end. It doesn’t take a radical change or large technology investments that work against the clock of the wave of technical change.

Small commercial insurance moves online…because it’s too low margin to do offline?

Matthew Josefowicz

There was an interesting article today on PC360 about the state of small business online. The article echoed many of the themes and issues we raised in our report last summer, Direct Online Small Commercial Insurance.

The article had some interesting quotes from direct players like Insureon and Hiscox, both of which were featured in our report. But it also contained this quote, which raises an issue we didn’t mention last summer:

“The Hartford is committed to a multichannel distribution model in its small commercial business and independent agents are at the center of the distribution strategy,” says Ray Sprague, senior vice president of small commercial insurance at The Hartford, but adds that the vast majority of small businesses operating in the U.S. today are often too small for many independent agents to profitably acquire and serve (emphasis added).

This resonates with several comments that small commercial CIOs made at a meeting I attended last week. There’s a big SOHO small commercial market that’s too small for most agents to care about. I believe insurers will increasingly look to the direct channel to be able to meet this market demand.

Related research and blog posts:

Accelerating Pace of Change Requires New IT Planning Paradigms

Rob McIsaac

One of the realities of IT in any industry is that “truth” related to technology is a fleeting thing. The best system or technology to deploy can evolve with surprising speed, making it important for CIO’s and their organizations to determine with some precision what a roadmap toward a future state should look like. Increasingly, CIO’s and their team should carefully consider just how long they think they will be in that future state too. This has implications for both the technologies to be deployed and the financial mechanics used to pay for them. Missing either of these key points can create the IT equivalent of “The Hangover”. Unfortunately, aspirin alone won’t cure this one!

There are parallels in other parts of our personal and professional lives. As a frugal minded sort, my typical approach to cars was to buy them and drive them long after the warranty and that new-car smell were gone. While the shapes and sizes until recently changed like fashion statements, the essential technology remained pretty stable.  Parts evolving slowly over time and had surprisingly long useful lives. As a result, parts and skills remained in a pretty consistent supply. A few years ago I finished restoring a 30 year old BMW (ok, so being frugal has its limits) and the only limiting factors were time and money. Parts and skills could be bought, because essentially the same vehicle had been in production for nearly 15 years.

Try that trick with a new car. They are better in every way. Faster, quicker, safer, better fuel economy, less maintenance. The list is long. But the challenge is that the technology used is fleeting. A two or three year old vehicle may have technology embedded that looks nothing like what is in production now. When the parts run out, there may be no clear path forward. As a friend of mine said, “I don’t think I could afford the risk of owning a new one when the warranty runs out!”.  Relatively small parts failures could lead to catastrophic financial events.  Leasing starts to sound like a pretty decent idea; about the time problems begin to set in, give the keys back and start over again.  It is an appliance, not an investment.

That’s hardly unique to cars. Is anyone paying real money to fix an iPhone 4?  Of course not. They were the height of cool a few years ago and helped to change the world we live in. Now they are disposable.

Large flat screen TV’s are the same way.  When a circa 2008 model expired recently, it was cheaper to get a new one (that was far better) than it was to fix the old one.  Turn them and burn them when they’re done.

There’s a good chance my next car will be disposable too. I will lease it, use it for a specific period of time, then replace it on or around a known date. I won’t depreciate it, won’t fix it, won’t treasure it like a friend. I will consume it and move on.

The same should be true of future core systems at insurance carriers. The systems and their vendors will evolve quickly using the “best” available technology at a moment in time. Then they will move on. Rinse and repeat will be their model.

And while carriers have built, bought, modified and embraced systems from the 1960′s to the 2000′s (a surprising number of 40-50 year old systems run major workloads every night), that’s a model that has a foreseeable end. Anyone pining for that “state of the art 2009 platform” now?  Of course not; we would have had a challenging time describing some of the things that would be key drivers for business success five years later.  That will be even more true as we think about 2019 or 2024.

Rather than acquiring and depreciation systems for a protracted lifespan, implementing with an eye toward “replacing the replacement” appears to be a more viable and effective model. This impacts skill sets, depreciation schedules and even the future state IT discussions. It may no longer be a “buy versus build” dialogue. For the future it may be “buy versus rent”.

A variety of factors have now come together to make this a viable option. If email for large / complex / highly regulated companies can live in the cloud, a host of other things like policy administration, claims, distribution management and financials can too. Pun intended.

I never thought I’d lease a car either, but we’ve crossed a risk / return tipping point that makes that a pretty attractive option. Of course I will keep my ’84 Bimmer for fun and pleasure. Sure wish the A/C worked better, however …